Fairfax writes down its assets by $2.9 billion

Fairfax writes down its assets by $2.8 billion

Will it turnaround the company's fortunes?

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 23, 2012 2:06 pm AEST

Fairfax Media Limited (ASX: FXJ) has today reported a massive full year loss after tax of $2.7 billion, which included a writedown on the company's intangibles of $2.8 billion and restructuring and redundancy expenses totalling $140 million, as it undergoes the most substantial restructure in its history.

Details of the writedown are as follows:-

$961m for regional newspapers
$913m for metropolitan newspapers, including The Sydney Morning Herald, The Age and The Canberra Times
$608m for New Zealand publishing
$225m for printing, and
$50m for radio assets.

Fellow media company News Corporation (ASX: NWS) has also announced writedowns of around $2 billion on its Australian newspaper division, and is splitting its publishing business from its TV and digital assets. Fairfax's CEO, Greg Hywood has stated that the company is committed to physical newspapers, and sees no benefit in splitting up the company. He in fact stated that the newspaper business is profitable.

The structural change away from physical newspapers to online content has seen Fairfax and other newspaper companies forced to adapt to new digital media. The issue Fairfax faces is that startup companies have beaten it to most of the online models. The company's Domain real estate site is second and a long way behind REA Group's (ASX: REA) realestate.com.au, likewise the company's Drive.com.au property, is second behind Carsales.com (ASX: CRZ). As we all know by now, the majority of job ads have ended up on Seek Limited's (ASX: SEK) seek.com.au powerhouse.

The good news for the company is that its digital brands are growing fast and accelerating. The Sydney Morning Herald holds the number one spot for news sites, whilst The Age holds down third spot. Digital revenues grew 17% in 2012, compared to 13% in 2011. The company has also reduced its debt levels by around $500m to $914m, thanks to assets sales and free cash flow.

Fairfax's long term aim is to stabilise the print business (closing print operations and moving The Sydney Morning Herald and The Age to smaller format newspapers amongst other moves), and accelerate its online growth, but has said this will take some time.

Foolish takeaway

The company should also benefit from a turnaround in ad revenues – according to the CEO, this is the worst ad market he has ever seen. The outlook was bleak as well, with conditions expected to continue. As a turnaround, Fairfax could be interesting to some investors, but you should be aware that turnarounds seldom work out.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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